Whoever said "all that glitters isn't gold" might have got it wrong after all.
At the moment, gold is practically the only thing that has any glitter left.
Pros and cons of buying gold now
As the stock market continues to get pummeled from the federal debt downgrade, anxiety over deficit spending, political cat fighting and whatever the latest economic crisis du jour is, gold prices have mounted a frenzied rally.
"I remember when gold was selling at $250 an ounce and nobody wanted to buy it," quipped David Robinson, a financial adviser at Robinson, Tigue, Sponcil Private Wealth Management in Phoenix. "Now it's above $1,700 and it seems everyone wants to buy it."
Another rally Wednesday propelled gold even further, with its price hitting a record-breaking $1,801 on Wednesday, before closing at $1,784.30.
Not everyone is buying, but enough eager purchasers have come forth to push the metal to new heights, with price records toppling like traffic cones around a motocross track.
"Over the past three days, we've definitely seen a lot more buying than selling," said Dean Greer, a broker at CMI Gold & Silver in central Phoenix. "We're getting a lot of first-time and smaller buyers."
This being the 21st century, gold investors have a lot of choices beyond just holding the physical metal.
You can buy shares in mining companies, such as Phoenix-based Freeport-McMoRan Copper & Gold, invest in multiple mining stocks through a precious-metals mutual fund or pursue various strategies in an exchange-traded fund.
"I prefer the actual metal," said Cynthia Fick, an adviser at Financial Life Planners in Ahwatukee Foothills.
But since bars and coins can be cumbersome to trade, she suggests exchange-traded funds such as SPDR Gold Shares and iShares Silver Trust.
Unlike many competitors, those two funds are backed by actual metal, not mining-company shares, and thus have minimal tangential exposure to the financial markets, though they are financial products.
But purists favor gold investments that can be held and touched - namely, bars and coins.
U.S. Eagles and South African Krugerrands, among the most widely recognized of the government-minted coins, have been generating a lot of interest lately, Greer said.
"They're the Coke and Pepsi of gold coins," he said.
Canada, China and Mexico are among various other nations that mint gold coins, in various weights.
Dealer premiums or markups add to the price. Figure on another 1.5 to 5.2 percent or so in markups above spot prices, said Greer, with premiums a bit higher for popular coins and less for bars.
Gold is unusual among the major investment categories in that it doesn't generate income. Unlike with stock dividends, bond interest payments or housing rents, for example, you'll only make money from gold if the next buyer is willing to pay more than you did.
Still, gold has become a widely acceptable part of diversified portfolios, but advisers differ in how much it should represent.
David Scheur, an adviser at Jacob Gold & Associates in Scottsdale, recommends a modest weighting in a fund like SPDR Gold.
"I'm certainly not moving everything out of stocks and into gold," he said. "But it doesn't hurt to have 5 or 10 percent of a portfolio in gold."
Fick is a bit more restrained.
"I don't think precious metals should be more than 5 percent of a portfolio," she said.
Robinson suggests even less, around 3 percent - and that's for commodities in general, not just gold.
"If I lost faith in the future of the economy, gold might look really good," he said. "But I haven't lost faith in the future of the economy."
If gold investors are worried that they might be participating in a bubble similar to those that engulfed tech stocks, housing and even gold itself a generation ago, they aren't showing it. Still, many financial advisers suggest caution.
Fick said she isn't recommending gold at current prices.
"I think it is overextended and subject to a correction," she said. "I prefer silver right now, as it is more reasonably priced."
The shifting sands of the current uncertain economic climate have ushered in a new golden age for gold. But nobody knows for sure whether we're closer to the dawn or dusk of that era.
Gold's allure stems from its position as a historic store of value, especially during periods of social stress. But other historic lessons don't bode so well for the metal.
"I remember during the housing boom how every TV commercial was about refinancing your home, with that Ditech guy in it," Robinson said.
"Now, it seems every commercial has some guy selling gold coins."
by Russ Wiles The Arizona Republic Aug. 11, 2011 12:00 AM
Gold at record-breaking high
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